2-The Gross Estate (Students) PDF

9/5/2016
TOPICS IN COURSE SYLLABUS

1. Inclusion in Gross Estate Real and Personal Properties;
tangible and intangible; Situs of properties. (discussed
already in previous lessons)
THE GROSS ESTATE
2. Rules on Citizen, Resident and non-resident decedents;

Reciprocity rule for non-resident aliens. (discussed already
in previous lessons)
3. Special rules for properties not physically in the estate
1
John John J. Dorega, CPA, MBA
FEU - Manila
4.
5.
6.
7.
August 30, 2016
Transfer in contemplation of death

Revocable transfers
Transfers under general power of appointment
On proceeds of life insurance
Taxable transfers
Claims against insolvent persons
Exemptions and exclusions from estate tax
Valuation of properties in the gross estate (discussed
already in previous lessons)
Course Learning Outcomes
TOPICS FOR DISCUSSION PURPOSES
No.
3.
Part 1 - Succession
Part 2 Inclusion in gross estate
Inventory count of existing properties at point of
death
Properties not owned by the decedent
Legal exclusions
Taxable transfers
Part 3 - Claims against insolvent persons
Part 4 - Valuation of properties in the gross estate
Course Learning
Outcomes
Distinguish the
different type of
decedents
Student Outcome
Demonstrate mastery of professional
accounting knowledge, skills and
values.
Display capability to pass CPA
licensure examination
Program Learning Outcome

Provide learning experiences that
deliver a supportive program of
study and activities which contribute
to the students well-being and social
development, so as to make them
qualified graduates who can
integrate their professional growth
and intellectual development.
Exhibit entry level skills for

employment in private establishments
and government institutions
Enhance students professional

knowledge by equipping them with
necessary managerial, leadership,
interpersonal and technical skills
needed in todays digital economy
and changing business environment.
Communicate effectively using oral,

written ad multi-media techniques
Develop students proficiency to

apply global perspectives to analyze
accounting and business issues.
Achieve academic excellence to

evaluate and analyze financial data for
effective decision making.
Improve the analytical and research

skills of students to monitor evolving
accounting standards and practices.
Use sound judgement and apply

analytical know-how in solving critical
issues
9/5/2016

No.
4.
Course Learning
Outcomes
Recognize the
factors affecting
estate taxation
Student Outcome
values.
No.

5.
7.
List all certain

acquisitions and
transmissions
exempted from
estate taxation
Student Outcome
values.













issues

Course Learning
Outcomes
Recall all the items

of the gross estate


issues
No.
Course Learning
Outcomes
Student Outcome
values.
No.

to the students well-being and
social development, so as to make
them qualified graduates who can
8.
Course Learning
Outcomes
Apply the proper
valuation of
properties subject
to estate tax.
Student Outcome
values.














issues

issues
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No.
22.
Course Learning
Outcomes
Comply with the
administrative
requirements of the
concerned revenue
agency including
venue.
Student Outcome
Demonstrate mastery of
professional accounting
knowledge, skills and
values.
Provide learning experiences that deliver a

supportive program of study and activities which
contribute to the students well-being and social
development, so as to make them qualified
graduates who can integrate their professional
growth and intellectual development.
Display capability to pass

CPA licensure
examination
No.
Course Learning
Outcomes
Prepare the
prescribed forms of
returns.
Student Outcome
Demonstrate mastery of
professional accounting
knowledge, skills and
values.
Provide learning experiences that deliver a

supportive program of study and activities which
contribute to the students well-being and social
development, so as to make them qualified
graduates who can integrate their professional
growth and intellectual development.
Enhance students professional knowledge by

equipping them with necessary managerial,
leadership, interpersonal and technical skills
needed in todays digital economy and changing
business environment.
Display capability to pass

CPA licensure
examination
Enhance students professional knowledge by

equipping them with necessary managerial,
leadership, interpersonal and technical skills
needed in todays digital economy and changing
business environment.
Exhibit entry level skills

for employment in private
establishments and
government institutions
Develop students proficiency to apply global

perspectives to analyze accounting and business
issues.
Exhibit entry level skills

for employment in private
establishments and
government institutions
Develop students proficiency to apply global

perspectives to analyze accounting and business
issues.
Achieve academic
excellence to evaluate and
analyze financial data for
Improve the analytical and research skills of

students to monitor evolving accounting
standards and practices.
Communicate effectively
using oral, written ad
multi-media techniques
Use sound judgement and

apply analytical know-how
in solving critical issues
23.
10
What is Succession?
A mode of acquisition by virtue of which the property, rights
and obligations to the extent of the value of inheritance, of a
person are transmitted through his death to another or others
either by his will or by operation of law. (Art. 774, CCP)
SUCCESSION
11
A mode of
acquisition
By the heir(s) from the decedent.
What to acquire
INHERITANCE that consists of:

(a) Property
(b) Rights and obligations (to the
extent of the value of inheritance)
Transmission
period
Upon death of the decedent (period of

perfection)
Manner of
transmission
(a) By will (If testate with last will

and Testament)
(b) By operation of law (If intestate
without last will and testament)
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Nature of Succession
No.
Nature
1.
Transmission
Gratuitous transmission
2.
Flow
From deceased person to a living

person
3.
Cause
Death (Donation mortis causa)
4.
Involve
Properties of the decedent
5.
Value
transmitted
Net value of the properties
6.
Requirement
Satisfy first the decedents

indebtedness and obligations,
including the estate tax.
Principles as Basis of Succession

No.
Explanation
1.
Basis
Family
relation
Explanation
2.
Assumes the principle of the natural law

necessitates a person to provide for those he
would leave behind.
Decedents wealth acquired during his lifetime
is presumed intended for the benefit of his
loved ones.
Refers to doctrine that as a consequence of

Implicit
death, heirs assumed ownership of property left
ownership
by the decedent because they have the primary
rights over the inheritance.
3.
Socioeconomic
(Logic: The heir shall not inherit the debt of

the decedent).
Based on theory that wealth left by the decedent

should be actively used to provide economic
benefit to the community.
The successor should continue to utilize
resources left by the decedent in order that the
wealth shall be preserved.
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17
Types of Succession
Elements of Succession
No. Elements
1.
2.
3.
Decedent
Estate
Heir
Explanation
Description
The person whose property is
transmitted through succession,
whether or not he left a will.
If he left a will, he is called the
TESTATOR.
No.
The property, rights and obligations

of the decedent o extinguished by
his death.
All called the INHERITANCE of the
decedent.
The person called to the succession:
1. By the provision of a will, or
2. By operation of law (if without a
will)
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Types of
Succession
Last will and

Testament
(LWT)
The person
who died is
called
Distribution of
inheritance
1.
Testamentary There is
Testate
According to LWT
2.
Intestate
None
Intestate
According with
the default
provision of the
CCP on
succession
3.
Mixed
Partly there
is and partly
none
Partly according
to LWT, partly
according with
the default
provision of the
CCP on
succession
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What is a Will?
Who Can Make a Will?
An act whereby a person is permitted, with the

formalities prescribed by law, to control to a
certain degree the disposition of the estate, to
take effect after his death.
An expression of the decedents desire as to how
his properties will be distributed after death.
ARTICLE 796, CCP:

Any person who is 18 years old and above and of
sound mind may make a valid last will and
testament for the disposition of his properties,
which should take effect upon his death.
Notes:
1. The making of a will is strictly a personal act.
2. It cannot be left in whole or in part of the discretion of a third
person, or accomplished through the instrumentality of an agent or
attorney.
15
15
Who are the Heirs?
Types of Will
No.
Types
The law identified them and designated as

COMPULSORY HEIRS which are of three types as
follows:
Description
1.
Holographic Entirely written, dated, and signed by the

hand of the testator himself.
2.
Notarial
Signed by the decedent and witnesses.
3.
Codicil
A supplement or addition to the will

made after the execution of a will and
annexed to be take as part thereof by
which disposition made in the original
will is explained, added, or altered (Art.
825, CCP)
No.
16
Types
Identified as the
1.
Primary
heirs
Legitimate children
and their direct
descendants.
When to inherit?
2.
Secondary Legitimate/illegitima
heirs
te parents and
ascendants.
Shall inherit only

in default of the
primary heirs.
3.
Concurrin The surviving spouse

g heirs
and the illegitimate
descendants.
Priority to share in
hereditary estate
with primary
heirs.
Priority to share in
hereditary estate
with concurring
heirs
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Who are the Heirs?
Ascendants versus Descendants
1.
Legitimate
children
Those born out of legal

marriage.
2.
Direct
descendants
The children or in their

absence, grandchildren.
3.
Legitimate
parents
Biological parents.
4.
Illegitimate
parents
Adopting parents to an
adopted child
5.
Surviving spouse
The widow or widower of the

decedent
6.
Illegitimate
descendants
Illegitimate children
ASCENDAN
TS
Description
DESCENDA
NTS
No. Compulsory Heirs
Parents of decedent
Grandparents of decedent
Uncle and auntie of
decedent
DECEDENT
Children of decedent
Grandchildren of
decedent
19
20
In the absence
of compulsory heir
No.
1.
2.
Order of Priority
to inherit
Summary of Rules
No.
Remarks
Collateral relatives
Priority is given to collateral
up to the fifth degree relatives in the CLOSEST
of consanguinity
DEGREE.
2nd degree (brothers and
sisters)
3rd degree (uncle, auntie,
niece, nephew)
4th degree (1st cousins of
decedent, 1st cousins of
grandparents)
Order of Priority to inherit
1.
Concurring heirs and descendants
2.
In default of descendants, concurring heirs

and ascendants.
3.
Collateral relatives up to the fifth degree of

consanguinity
4.
The Philippine government
The Philippine
government
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23
24
OTHER PERSONS
IN SUCCESSION
No.
Other persons
TYPE OF SUCCESSION
Description
1.
Legatee
A person whom gifts or personal

property is given by virtue of a will.
2.
Devisee
A person whom gifts of real property is

given by virtue of a will.
3.
Executors
A person named by the decedent who

shall carry on the provisions of his will.
4.
Administrators
A person appointed by the court to

manage the distribution of the estate of
the decedent.
TESTAMENTARY SUCCESSION
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CONSIDERATION
1.
2.
3.
4.
NET HEREDITARY ESTATE
Property left at the death of the testator

Debts and charges
Value of collationable donations
Net hereditary estate
It is the value of the hereditary

estate after:
1) Deducting all debts and
charges, and
2) Adding back the value of all
donations by the testator
that are subject to
collation.
5. Legitime
6. Whole estate that could be disposed of
7. Free portion
Property left
(+) Value of collationable

donation
xxx
(-) Debts and charges

xxx
(xxx)
P
xxx
Notes:
Collation is the return of the
donations
made
by
the
deceased to his hereditary
estate
either
by
adding
mathematically the value of
said donation or by actually
bringing them back to the
estate. It takes place when
there are compulsory heirs to
determine the legitime and the
free portion so that there will
be equality of distribution
among them.
Reference:
http://www.philstar.com/opinion/2013/
09/11/1196401/collation
29
30
LEGITIME
FREE PORTION
That part of the testators property which cannot

be disposed of because the law has reserved it for
certain heirs who are, therefore, called
compulsory heirs. (Art. 886, CCP)
Testators whole estate that could

be disposed of (net hereditary estate)
Less: Legitime
Free portion of the estate
In testamentary disposition, the decedent can name a

person as an heir whether related or not to him as long
he does not violate his legitime.
In intestate disposition, the heirs shall be determined
based on the provision of the CCP.
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P xxx
xxx
P xxx
Free portion of the estate is that part of the whole

estate which the testator could dispose of freely
through a written will irrespective of his relationship
to the recipient.
This is the estate in excess of legitime.
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TESTAMENTARY
DISTRIBUTION OF NET ESTATE
No.
SUCCESSOR
LEGITIME
TESTAMENTARY
CCP REF.
1. Legitimate children
or descendants
1/2
Art. 888
2. Illegitimate children
alone
1/2
Art. 901
No.
SUCCESSOR
LEGITIME
(IC) and surviving
spouse (SS)
IC = 1/3
SS = 1/3
CCP REF.
Art. 894
Art. 176 of
Family
Code
7. Two or more
LC = 1/2
legitimate children
NC = 1/2 of one LC
(LC), natural children SS = 1 of one LC
(NC) and surviving
spouse (SS).
Art. 897
3. Legitimate Children
LC 1/2
(LC), natural children NC 1/2 of one LC
(NC), and illegitimate IC 1/2 of one LC
children (IC)
4. One legitimate child
(LC) and surviving
spouse (SS).
LC 1/2
SS 1/4
Art. 892
8. Parents or ascendants 1/2

alone
Art. 889
Art. 909
5. Two or more
legitimate children
and surviving spouse
SS = Legitime of 1 LC
9. Surviving spouse
alone
Art.892
1/2 or 1/3
33
TESTAMENTARY
No.
SUCCESSOR
10. Ascendants (As) and

surviving spouse
LEGITIME
TESTAMENTARY
Illustration 1:
CCP REF.
As = 1/2
SS = 1/4
Art. 893
11. Ascendants(As),
As = 4/8
surviving spouse (SS), SS = 2/8
and illegitimate
IC = 1/8
children (IC)
Art. 899
34
Pat Aina, a widower with two legitimate children named

Ana and Ben, died testate with net hereditary estate of P
50,000,000.
Computation of distribution of estate:
Distribution of estate
Ana, P 12,500,000
(25,000,000) Ben, P 12,500,000
Legitime 1/2
Free portion
35
50,000,000
25,000,000
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TESTAMENTARY
TESTAMENTARY
Illustration 2:
Illustration 3:
Don Quixote de la Plantsa, a widower died leaving a net

hereditary estate of P 80,000,000 to his two legitimate
children Carlo and Dina, his acknowledged natural child
Elliot, and his illegitimate son Francis.
Don Quixote de la Plantsa, died leaving a net hereditary

estate of P 60,000,000 to his three legitimate children Gina,
Harry and Igi, and his wife Doa Lavandera de la Plantsa.
Estate Distribution
Estate Distribution
60,000,000
LEGITIME:
80,000,000
3 legitimate children 1/2
LEGITIME:
(30,000,000) Gina, P 10,000,000

Harry, P 10,000,000
(40,000,000) Carlo, P 20,000,000

Dina, P 20,000,000
1 natural child (P 40M / 2) x

1 1llegitimate child (P 40M/2) x 1/2
FREE PORTION
Igi, P 10,000,000
(10,000,000) Elliot, P 10,000,000
Surviving spouse 1/4
(10,000,000) Francis, P 10,000,000

P
20,000,000
FREE PORTION
(15,000,000) Wife, P 15,000,000

P
15,000,000
37
38
TESTAMENTARY
TESTAMENTARY
Illustration 4:
Illustration 5:
Don Quixote de la Plantsa, died leaving a net hereditary

estate of P 75,000,000 to his one illegitimate child James, and
his wife Doa Lavandera de la Plantsa.
Don Quixote de la Plantsa, died leaving a net hereditary estate

of P 100,000,000 to his two legitimate children Ken and Lance,
two illegitimate children Mark and Neil,and his wife Doa
Lavandera de la Plantsa.
Estate Distribution
Estate Distribution
75,000,000
LEGITIME:
1 illegitimate children 1/3
(25,000,000) James, P 25,000,000
(25,000,000) Wife, P 25,000,000
FREE PORTION
P 100,000,000
LEGITIME:
(45,000,000) Ken, P 22,500,000
2 illegitimate children (P 45M/2) 1/2
(22,500,000) Mark, P 11,250,000
Surviving spouse P 45M / 2
(22,500,000) Wife, P 22,500,000
Lance, P 22,500,000
25,000,000
Neil, P 11,250,000
39
FREE PORTION
10,000,000
40
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TESTAMENTARY
TESTAMENTARY
Illustration 6:
Illustration 7:
Omar leaves his parents Pedro and Rosa, and his wife Sally.
His net hereditary estate is P 60,000,000.
Tony leaves his parents Ully and Vina, his illegitimate son
Win, and his wife Yani. His net hereditary estate is P
50,000,000.

Estate Distribution
Estate Distribution
60,000,000
LEGITIME:
50,000,000
LEGITIME:
Parents 1/2
(30,000,000) Pedro, P 15,000,000
Parents 4/8 or 1/2
(25,000,000) Ully, P 12,500,000
Rosa, P 15,000,000

FREE PORTION
Vina, P 12,500,000
(15,000,000) Sally, P 15,000,000

P
1 illegitimate son 1/8
15,000,000
(6,250,000) Win, P 6,250,000
Surviving spouse 2/8 or 1/4

FREE PORTION
(12,500,000) Yani, P 12,500,000

P
6,250,000
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CASES OF INTESTATE SUCCESSION

TYPE OF SUCCESSION
1.
2.
3.
4.
INTESTATE SUCCESSION
43
Without a written will

With a void will
With a will which subsequently lost its validity
With a will but no one was named as successor
44
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INTESTATE
ORDER OF INTESTATE SUCCESSION

1. Descendants, direct line (Art. 965)
2. Ascendants, direct line (Art. 965)
3. Collateral lines
No.
SUCCESSOR
INHERITANCE
CCP REF.
(descendants alone)
Entire estate, to be shared Art. 980

equally
and parents
100% to legitimate
children
and brothers and
sisters
100% to legitimate
children
Spouse = Share of one

child
Art. 996
5. Legitimate and
illegitimate children
Proportion of 10: 5
Art. 983
6. Legitimate children,
illegitimate children,
and spouse
10:5 and spouse = 1 share

of legitimate child
Art. 999
45
46
INTESTATE
No.
SUCCESSOR
INHERITANCE
alone
Entire estate
and legal parents
IC = 1/2
Legal parents = 1/2
INTESTATE
CCP REF.
No.
SUCCESSOR
INHERITANCE
CCP REF.
13. Parents and brothers

and sisters
Entire to parents
Art. 985
Art. 991
14. Surviving spouse,

brothers and sisters
SS = 1/2
Brothers and sisters = 1/2
Art. 1001
IC = 1/2
SS = 1/2
Art. 998
15. Adopted children,

legitimate children
Equally
Art. 979
10. Illegitimate children,

legal parents, and
surviving spouse
IC = 1/4
Legal parents = 1/2
SS = 1/4
Art. 1000
16. In case of death of

adopted child, with
no descendants
Parents by blood and

relatives by blood
Art. 984
11. Legal parents and

surviving spouse
Legal parents = 1/2

SS = 1/2
Art. 997
17. Surviving relative is

beyond fifth degree
The state is the heir
Art. 1010
Art. 1011
12. Illegitimate parents

Illegitimate parents = 1/2

SS = 1/2
47
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DISHERITANCE
THE CASE OF
An act by which the owner of an estate deprives a

person who would otherwise be his heir, or the
right to inherit it. (Blacks Law Dictionary, 5th
Edition)
DISINHERITANCE
Can be effected only through a will wherein the

legal cause shall be specified. (Art. 916, CCP)
It is not implied.
The heir whose share us disinherited must be
specifically identified.
49
50
DISNIHERITANCE
DISNIHERITANCE
ART. 919 CCP

Disinheritance of children and descendants,
legitimate as well as illegitimate
LEGAL CAUSE in accordance with law. Otherwise,

the inheritance is inoperative. (Art. 918, CCP)
1. Disinheritance of children and descendants
2. Disinheritance of parents and descendants
51
When a child or descendant

1. Has been found guilty of any attempt against the life of
the testator, his or her spouse, descendants or
ascendants;
2. Has accused the testator for a crime for which the law
prescribes imprisonment for six years or more, if the
accusation has been found groundless;
3. Has been convicted of adultery or concubinage with the
spouse of the testator;
4. By fraud, violence, intimidation, or undue influence
causes the testator or make a will or to change one
already made;
52
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DISNIHERITANCE
DISNIHERITANCE
ART. 919 CCP

Disinheritance of children and descendants,
legitimate as well as illegitimate
ART. 920 CCP

Disinheritance of parents and ascendants,
whether legitimate or illegitimate
CONTINUED Other causes

5. A refusal without justifiable cause to support the parent
or ascendant who disinherits such child or descendant;
6. Maltreatment of the testator by word or deed, by the child
or descendant
7. When a child or descendant leads a dishonorable or
disgraceful life; and
8. Conviction of a crime which carries with it the penalty of
civil interdiction.
1. When the parent have abandoned their children, or

induced their daughters to live a corrupt or immoral life,
or attempted against their virtue;
2. When the parent or ascendant has been convicted of an
attempt against the life of the testator, his ir her spouse
descendants, or ascendants;
3. When the parent or ascendant has accused the testator of
a crime for which the law prescribes imprisonment for
six years or more, if the accusation has been found to be
false;
53
54
DISNIHERITANCE
THE CASE OF
ART. 920 CCP

Disinheritance of parents and ascendants,
whether legitimate or illegitimate
4. When the parent or the ascendant has been convicted of
adultery or concubinage with the spouse of the testator;
5. When the parent or ascendant by fraud, violence
intimidation, or undue influence causes the testator to
make a will or to change one already made;
6. The loss of parental authority for causes specified in this
code;
7. The refusal to support the children or descendants
without justifiable cause; and
8. An attempt by one of the parent against the life of the
other; unless there has been a reconciliation between
them.
REPUDIATION
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DISNIHERITANCE
AND REPUDIATION
An heir may repudiate their share in the

inheritance of the decedent.
Ways to repudiate:
INCLUSION IN GROSS ESTATE
1. By means of a public instrument

2. By means of an authentic instrument
3. By means of a petition presented to the court having
jurisdiction over the testamentary or intestate
proceedings.
Reference:
http://www.batasnatin.com/law-library/civil-law/succession/2376-repudiation-ofthe-inheritance.html
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PROCEDURES AND FORMULA

IN ESTABLISHING GROSS ESTATE
COMPOSITION OF GROSS ESTATE

1. Properties:
a) Movable and immovable
b) Tangible and intangible
2. Decedents interest on properties
a) Designated as revocable to by heir
b) Regardless of designation, if the
beneficiary is the estate, administrator or
executor
3. Taxable Transfers
PROCEDURES
1.
Inventory count of existing properties at

the point of death.
2.
Adjust for exempt transfers
AMOUNTS
P
Properties not owned
(+) P xxx
Properties owned but excluded by law
(+)
xxx
xxx
xxx
P
xxx
Inventory of taxable present properties

3.
Adjust for taxable transfers

GROSS ESTATE
xxx
P
xxx
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INVENTORY COUNT
OF EXISTING PROPERTIES
AT POINT OF DEATH
PROCEDURES
AMOUNTS
1.

the point of death.
2.
(+) P xxx
(+)
xxx

3.
xxx
P
xxx
xxx
GROSS ESTATE
INVENTORY COUNT OF EXISTING

PROPERTIES AT POINT OF DEATH
xxx
xxx

PROCEDURES:
PROCEDURES:
1. Perform physical count and determine their

respective fair values at the time of death.
2. If the inventory is prepared after the

decedents death, the inventory list be worked
back to establish the list of present properties
at the point of death.
Date of Death
Date of Death
Date of inventory
count
Date of inventory count

Deduct any increase in
inventory up to date of death
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Date of Death
ADJUSTEMENT TO INVENTORIES
Date of inventory count
PROPERTIES NOT OWNED BY THE

DECEDENT
Deduct any increase in

inventory up to date of death
1. Properties representing income accruing after death must
be deducted since these are not yet present at the point of
death.
2. Expenses or obligations which are paid since death must be
added back since these are present at the point of death.

PROCEDURES
1.
2.
3.
AMOUNTS

the point of death.
xxx
(+) P xxx
(+)
1. Merger of the usufruct in the owner of the

naked title.
Note:
xxx
xxx
P

GROSS ESTATE
PROPERTIES
NOT OWNED BY THE DECEDENT
xxx
xxx
xxx
Usufruct is the legal right to use and enjoy the benefits and
profits of something belonging to another. (Blacks Law
Dictionary)
A usufructuary is the person who has the right of enjoying the
use and the fruits of the property belonging to another. He can
draw profit, utility, and advantage which the usufruct property
may produce, provided that, he has to preserve or maintain the
substance of the thing. (Ibid)
17
9/5/2016
PROPERTIES
naked title.
PROPERTIES
naked title.
Note:
Note:
The owner of the naked tile is the person who is vested the
ownership, dominion, or title of the property under the usufruct
agreement. He has the right to enjoy the property as consistent
with the enjoyment of the thing by the usufructuary. However, he
is not the absolute owner of the property because he has to
respect the right of the usufructuary over the fruits and use of
the property. (2 Tolentino, 272).
When the same person becomes a usufructuary and the owner

of the naked title, there is merger of the usufruct in the owner of
the naked title, which makes him/her the absolute owner of the
property.
Merger of the usufruct

in the owner of the naked title
Juan died on June 1, 2000; devised an
agricultural land to Pedro who shall
use the property for 10 years,
thereafter to Andres.
JUAN
(Predecessor / Decedent)
MORTIS CAUSA
PEDRO
Subject to Estate Tax
(Devisee)
DIED on
May 1, 2005
The agricultural land will be

transferred to Andres, the owner of
the naked title.
ANDRES
(Heir / Owner of naked title)
PROPERTIES
2. The transmission or delivery of the inheritance or
legacy by the fiduciary heir or legatee to the
fideicommissary.
Notes:
A LEGACY in strict sense is a gift or bequest by will of
personal personal property.
A DEVISE, on the other hand, is a testamentary disposition of
a real estate.
MERGER OF THE USUFRUCT IN

THE OWNER OF NAKED TITLE
Not Subject to Estate Tax
PEDRO
(Current Decedent)
18
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PROPERTIES
The transmission or delivery of the inheritance

or legacy by the fiduciary heir or legatee to the
fideicommissary
2. The transmission or delivery of the inheritance or

legacy by the fiduciary heir or legatee to the
fideicommissary.
Notes:
A FIDUCIARY HEIR is the first heir of the property.
A FIDEICOMMISSARY is the second heir whose relationship
to the fiduciary heir must be one degree of generation such
that of a parent and a childe (vise versa). It is also the person
designated who has the real or beneficial interest in an estate
or fund, the title or administration of which is temporarily
confided to another. (Blacks Law Dictionary).
PROPERTIES
3.
The transmission from the first heir,

legatee, or done in favor of another
beneficiary, in accordance with the desire
of the predecessor.
Marco died on March 1, 2016; leaving

real estates to Totoy, a minor;
appointed Lyndon, his older brother,
as fiduciary to the inheritance.
MARCO
MORTIS CAUSA
LYNDON
(Fiduciary heir / Trustee)
DIED on
May 1, 2016
The real estates will be transferred to

Totoy, the owner of the naked title.
A RETURN OF THE PROPERTY

TO THE REAL OWNER
TOTOY
(Fideicommissary)
(Heir / Owner of naked title)
LYNDON
(Current Decedent)
The transmission from the first heir, legatee, or done

in favor of another beneficiary, in accordance
with the desire of the predecessor.
On January 31, 2016, Kiko died and
devised a piece of land to Dino as the
first heir and thereafter to Lina as the
second heir.
KIKO
MORTIS CAUSA
DINO
(First Heir)
DIED on
April 25,
2016
Dino transmitted the property to Lina.
LINA
(Second Heir)
TRANSFER UNDER A SPECIAL

POWER OF APPOINTMENT
DINO
(Current Decedent)
19
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PROPERTIES
4. Proceeds of irrevocable life insurance policy
payable to beneficiaries other than the estate,
executor or administrator.
Proceeds of irrevocable life insurance

policy payable to beneficiaries other than
the estate, executor or administrator
BENEFICIARY
Designation of
Beneficiary
REVOCABLE
IRREVOCABLE
Proceeds of irrevocable life insurance policy payable to

beneficiaries other than the estate, executor or
administrator
Illustration:
Mr. H. Ingalo died on May 1, 2016. The following proceeds of
life insurance policies are collected by his heirs:
AXA, revocably designated to wife
P 1,600,000
Estate, executor or
administrator
Other Parties
Include in gross estate
Include in
gross estate
INCLUDE in gross
estate because these
beneficiaries are
considered extension
of the interest of the
decedent.
Exclude in
gross estate

administrator
Answer to Illustration:
1. How much proceeds of insurance policies should be
included in the gross estate?
Manulife, irrevocably designated to son
1,200,000
Sunlife, revocably designated to Mr. H. Ingalos

estate
1,400,000
1,200,000

estate
1,400,000
Philam, irrevocably designated to Mr. H. Ingalos

executor
800,000
QUESTIONS:
1. How much proceeds of insurance policies should be included in
the gross estate?
2. How much proceeds of insurance policies should be included in
gross estate assuming the beneficiary is the estate, executor or
administrator?
Philam, irrevocably designated to Mr. H.

Ingalos executor
Total
1,600,000
800,000
P
3,800,000
20
9/5/2016

administrator
2. How much proceeds of insurance policies should be
included in gross estate assuming the beneficiary is
the estate, executor or administrator?
1,600,000
1,200,000

estate
1,400,000
Philam, irrevocably designated to Mr. H.

Ingalos executor
Total
Condominium unit in Makati City

Laptop, borrowed from his friend May Abang
900,000
100,000
2,500,000
50,000
5-door apartment, held as trustee
1,000,000
711 Franchise
5,000,000
Books, gym equipment and other personal

belongings
These proceeds are not owned by him.

The decedent is only a trustee.
Therefore, these will not form part of
the decedents donation mortis causa.
5,000,000
Illustration:
Upon the death of Mr. Tim Bog, the following properties
were identified:
Johnsports bag, consigned to Mr. Tim Bog
5. Proceeds held in trust by the

decedent.
800,000
Proceeds held in trust by the decedent.
Car, registered in the name of Mr. Ham Bog, his

brother.
PROPERTIES
250,000
Proceeds held in trust by the decedent.

How much is the gross estate of Mr. Tim Bog? P 7,750,000
Car, registered in the name of Mr. Ham Bog, his
brother.
Johnsports bag, consigned to Mr. Tim Bog
900,000
100,000
Condominium unit in Makati City
2,500,000
Laptop, borrowed from his friend May Abang
50,000
5-door apartment, held as trustee
1,000,000
711 Franchise
5,000,000
Books, gym equipment and other personal

belongings
GROSS ESTATE OF MR. TIM BOG
250,000
7,750,000
QUESTION:
How much is the gross estate of Mr. Tim Bog?
21
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Separate properties
of the surviving spouse
PROPERTIES
6.
PROPERTIES OWNED BY SPOUSES
Separate properties of the

surviving spouse.
COMMON PROPERTIES
EXCLUSIVE PROPERTIES
Owned jointly by spouses
Solely owned by either

spouse
Also called conjugal

properties.
Also called separate

properties.
HUSBAND
Separate properties
Wifes
paraphernal
Not included
in the gross
estate of the
wife upon her
death.
Not included in
the gross
estate of the
husband upon
his death.
Separate properties
Illustration:
At the point of death of Mr. Bob A. Ero, the inventory of
properties revealed the following:
How much is the gross estate of Mr. Bob A. Ero?
Exclusive properties of Mr. Bob A. Ero
Exclusive properties of Mr. Bob A. Ero
Exclusive properties of Mrs. Ero

Common properties of Mr. and Mrs.
Ero
WIFE
Husbands
capital
5,000,000
Exclusive properties of Mrs. Ero
7,000,000
Common properties of Mr. and Mrs. Ero

(See related notes below)
50,000,000
QUESTION:
How much is the gross estate of Mr. Bob A. Ero?
TOTAL GROSS ESTATE OF MR. BOB A. ERO
5,000,000
7,000,000
50,000,000
55,000,000
NOTES:
The common properties of P 50,000,000 are initially included in the gross estate
of the decedent spouse (Mr. Bob A. Ero). Later, the share of the surviving
spouse will be removed as an item of deduction from the gross estate.
22
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PROPERTIES
7.
Transfer by way of bona fide

sales.
GROSS ESTATE COMPOSITION

Illustration:
James, a resident citizen, died with the following
properties at the time of his death.
Cash in bank account
This is a onerous transaction rather

than gratuitous transaction (not subject
to estate tax)
At point of sale, ownership transferred
or passed immediately to the buyer.
This is very true if the transfer is for an
adequate consideration.
Receivables from friends and relatives
5,000,000
100,000
Borrowed car from a friend
500,000
House and lot
5,000,000
Second hand car, registered in the name of his

son
Total
300,000
P
10,900,000
QUESTIONS:
How much is the gross estate of James?

How much is the gross estate of James?
Inventory of present properties
10,900,000
Less: Not owned

Borrowed car from a friend
500,000
Second hand car, registered in the

name of his son
300,000
Gross estate
LEGAL EXCLUSIONS
800,000
10,100,000
23
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PROCEDURES
1.

the point of death.
2.
AMOUNTS
P
(+) P xxx
(+)

3.
xxx
xxx
xxx
P
xxx
xxx
GROSS ESTATE
xxx
LEGAL EXCLUSIONS
1.
2.
3.
4.
5.
Proceeds of
group of
insurance taken
out by a company
for its employees.
Proceeds from
GSIS policy or
benefits from
GSIS
Accruals from
SSS
US Veterans
Administration
(USVA) benefits
RA 136
War damage
payments
Used to
acquire
properties
Still exempt from

ESTATE TAX, as
long as the heirs or
administrators
prove that the
properties are
acquired using
these exempt
properties.
LEGAL EXCLUSIONS
Part of hereditary estate but exempted from
estate tax by law.
1. Proceeds of group of insurance taken out by a company
for its employees.
2. Proceeds from GSIS policy or benefits from GSIS
3. Accruals from SSS
4. US Veterans Administration (USVA) benefits RA 136
5. War damage payments
6. All bequests, devises, legacies or transfers to social
welfare, cultural and charitable institution, no part of
net income of which inures to the benefit of any
individual; provided, however, that not more than 30% of
such bequest, devises, legacies, or transfers shall be
used by such institutions for administrative purposes.
7. Acquisitions and/or transfers expressly declared as
non-taxable by law.
LEGAL EXCLUSIONS
All bequests, devises, legacies or transfers to social welfare,
cultural and charitable institution, no part of net income of which
inures to the benefit of any individual; provided, however, that not
more than 30% of such bequest, devises, legacies, or transfers
shall be used by such institutions for administrative purposes.
REQUIREMENTS TO BE
NON-TAXABLE TO
DONOR:
Donate
P 100,000
DONOR
DONEE
1. Interest income of P 5,000

will not be used by ay
individual.
2. P 30,000 (30%) for
administrative purposes of
the donee.
3. P 70,000 (70%) for
charitable/program
purposes of the donee.
4. DONEE is an accredited
non-profit institution.
24
9/5/2016

OF TAXABLE PRESENT PROPERTIES
TAXABLE TRANSFERS
PROCEDURES
1.

the point of death.
2.
AMOUNTS
P
(+) P xxx
(+)

3.
These are mortis-causa transfers of properties in

the guise and form of an inter-vivos transfers.
1. Transfer in contemplation of death
2. Revocable transfers, including conditional
transfers
3. Property passing under the general power
of appointment.
xxx
P

GROSS ESTATE
TAXABLE TRANSFERS
xxx
xxx
xxx
xxx
xxx
Revocable Donation
Illustration 1:
On May 1, 2016, Jose transferred a new car with
FMV of P 1,000,000 to Juan. The car shall be
revocable by Jose until May 1, 2017. Jose died on
April 1, 2017 when the car has a FMV of P 900,000.
QUESTIONS:
1. Is the car included in the gross estate of Jose? If yes, by
what amount? YES, at P 900,000 (the FMV at the time of
his death)
2. If prior to his death, Jose waived the right to revoke, Is
the car included in the gross estate of Jose? If yes, by
what amount? NO, exclude this in gross estate; subject to
donors tax.
25
9/5/2016
Conditional Donation
Transfer with Retention of Certain Rights
Answer to Illustration 2:
In May 1, 2016, Mother Delia transferred a car to
her daughter Rosa with the condition that she will
pass the October, 2016 CPA Exam. On July 1, 2016,
Mother Delia died.
Andrew transferred a piece of land worth P
5,000,000 in favor of his son, Jason. However, he
reserved for himself the enjoyment of the quarter
of the land until his death.
QUESTIONS:
1. Is the car included in the gross estate of Mother Delia? If
yes, by what amount? YES.
2. If prior to his death, Mother Delia waived the right to
revoke, Is the car included in the gross estate of Rosa? If
yes, by what amount? NO, exclude this in gross estate;
subject to donors tax.
QUESTIONS:
How much is included in the gross estate of Andrew?
P 1,250,000 computed as P 5,000,000 x .
Included in the gross estate is up to the extent of the
decedents interest therein.
Separate properties
Transfer under General Power of Appointment

Don Pepot died testate. In his will, Mang Pepe will
receive his piece of land with the right to designate
the property with whomever heir he wants. Mang
Pepe eventually died and appointed Pilar as heir to
the property.
QUESTIONS:
1. Is the piece of land included in the gross estate of Mang
Pepe? YES because he has general power of appointment
2. If there is a limited power granted to Mang Pepe, is the
piece of land included in his gross estate? NO because he
has a limited power of appointment.
Illustration 5:
Carlo, a decedent had the following properties
indicated in his will:
Personal house and lot
P 10,000,000
Car
1,000,000
Cash (donated to a public high school)
4,000,000
A piece of land (donated to non-profit charitable
5,000,000
institution)
Gross estate
P 20,000,000
QUESTION:
How much is the gross estate of Carlo?
26
9/5/2016
Separate properties

Illustration 6:
Maria, a resident citizen, died leaving the following properties:
How much is the gross estate of Carlo?
Personal house and lot
P 10,000,000
Car
1,000,000
Cash (donated to a public high school)
4,000,000
A piece of land (donated to non profit charitable
5,000,000
institution)
Gross estate
P 15,000,000
Notes:
1. Only donation to social welfare, cultural and charitable institutions
are exempt.
2. Transfers to the government and its instrumentalities are not items
of exclusions for items of deductions (must be separately deducted
from gross estate in estate tax return)
Cash proceeds of life insurance designated to a

brother as revocable beneficiary
2,000,000
Building, properties held for usufructuary
5,000,000
Cash and cars, earned from building
3,000,000
Agricultural land (with Special power of appointment)
3,000,000
House and lot from Marias industry
10,000,000
Benefits from SSS

Total
700,000
P
23,700,000
Maria made a revocable donation involving a residential lot to his

brother Mike who paid P 500,000 when the lot was worth P 1,000,000.
The lot was currently valued at P 2,000,000 zonal value upon death of
Maria.
QUESTIONS: How much is the gross estate of Maria

How much is the gross estate of Maria
Inventory of present properties
23,700,000
Less: Properties not owned

Building, properties held for usufructuary
Claims Against Insolvent Person
5,000,000
Agricultural land (under SP of Appointment)
3,000,000
Total
8,000,000
Properties exempted by law

Benefits from SSS
Taxable present properties
Add: Taxable transfers (P 2,000,000 P 500,000)
GROSS ESTATE OF MARIA
700,000
8,700,000
15,000,000
1,500,000
16,500,000
108
27
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CLAIMS AGAINST INSOLVENT PERSON
This is a form of loss but is presented as a

separate item of deduction on the tax return.
How much is the deductible claims against

insolvent person for tax purposes?
The deductible amount of claim against insolvent

person is the unrecoverable amount of claim.
1. If there is zero recovery, the loss from claim is the entire

amount of receivable.
109
110
Illustration:
Nilo Co is a very good person. Before his death, he lent P
100,000 cash to his friend Amanda Rambong. After his
death, it was found out that his friend Amanda was adjudged
bankrupt by the court with total assets of only zero and total
liabilities of P 1,000,000.
Illustration:
Nilo Co is a very good person. Before his death, he lent P 100,000
cash to his friend Amanda Rambong. After his death, it was found
out that his friend Amanda was adjudged bankrupt by the court
with total assets of only zero and total liabilities of P 1,000,000.
Required:
1. How much is the claim against insolvent person of Nilo Co?
The receivable of Nilo Co from Amanda Rambong, the
insolvent person is P 200,000.
Required:
1. How much is the claim against insolvent person of Nilo
Co?
2. Based on the given information, how much is the
deductible amount of claim against insolvent person by
Nilo Co?
2.
111
Based on the given information, how much is the deductible

amount of claim against insolvent person by Nilo Co?
The entire amount of P 200,000 because no chance of recovery
since the asset of the insolvent person is ZERO.
112
28
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Illustration 1:
How much is the deductible claims against

insolvent person for tax purposes?

with total assets of only P 400,000 and total liabilities of P
1,000,000.
2. If there is a portion to be recovered because the

insolvent person has ASSETS (but less than the
LIABILITY amount), the loss from claim can be
computed as follows:
a)
b)
c)
Required:
2. What is the percentage of claim of Nilo Co from the total
liabilities of Amanda Rambong?
3. How much is the asset deficiency of Amanda Ramong to pay its
liabilities?
4. How much is the deductible amount of claim against insolvent
person by Nilo Co?
Determine the percentage of the claim from the total

liabilities of the insolvent person. (Claimable amount /
Total liabilities of insolvent person)
Compute the negative balance of assets of the insolvent
person. (Assets Liabilities = Negative asset balance)
Compute the deductible claims against insolvent person
(% of claim x negative asset balance)
113
114
Illustration 1 - SOLUTION:

with total assets of only P 400,000 and total liabilities of P
1,000,000.
Nilo Co is a very good person. Before his death, he lent P 100,000 cash to his friend
Amanda Rambong. After his death, it was found out that his friend Amanda was
adjudged bankrupt by the court with total assets of only P 400,000 and total liabilities
of P 1,000,000.
Required:
3. How much is the asset deficiency of Amanda Ramong to pay its
liabilities?
P 400,000 (total assets) P 1,000,000 (total liabilities)
= (P 600,000) negative assets
Required:
The receivable of Nilo Co from Amanda Rambong, the
insolvent person is P 200,000.
2.
4.
What is the percentage of claim of Nilo Co from the total

liabilities of Amanda Rambong?
P 100,000 claims / P 1,000,000 total liabilitities
= 10%
115
How much is the deductible amount of claim against insolvent

person by Nilo Co?
= 10% x (P 600,000)
= P 60,000
116
29
9/5/2016
Illustration 2:
Before his death, Kaye T. Anga lent P 50,000 cash to his friend
Mando Rugas. After his death, it was found out that Mando Rugas
was adjudged bankrupt by the court with total assets of only P
100,000 and total liabilities of P 2,000,000.
Before his death, Kaye T. Anga lent P 50,000 cash to his friend
Mando Rugas. After his death, it was found out that Mando Rugas
was adjudged bankrupt by the court with total assets of only P
100,000 and total liabilities of P 2,000,000.
Required:
1. How much is the claim against insolvent person of Kaye T.
Anga?
2. What is the percentage of claim of Kaye T. Anga from the total
liabilities of Mando Rugas?
3. How much is the negative assets of Mando Rugas?
4. How much is the deductible amount of claim against insolvent
person by Nilo Co?
5. How much will be recovered by Kaye T. Anga?
Required:
1. How much is the claim against insolvent person of Kaye T.
Anga? P 50,000
2.
What is the percentage of claim of Kaye T. Anga from the total

liabilities of Mando Rugas?
P 50,000 claims / P 2,000,000 total liabilitities
= 2.5%
117
118

Before his death, Kaye T. Anga lent P 50,000 cash to his friend Mando Rugas. After his
death, it was found out that Mando Rugas was adjudged bankrupt by the court with
total assets of only P 100,000 and total liabilities of P 2,000,000.
Valuation of Properties
in Gross Estate
Required:
3. How much is the negative assets of Mando Rugas?
= P 100,000 (total assets) P 2,000,000 (total liabilities)
= (P 1,900,000) negative assets
4.
How much is the deductible amount of claim against insolvent

person by Nilo Co?
= 2.5% x (P 1,900,000)
= P 47,500
5.
How much will be recovered by Kaye T. Anga?

P 50,000 total claim P 47,500 (loss)
= P 2,500
(Discussed in previous module)
119
120
30
9/5/2016
Thank you!
121
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TOPICS IN COURSE SYLLABUS

THE GROSS ESTATE

2. Rules on Citizen, Resident and non-resident decedents;

August 30, 2016

Transfer in contemplation of death

Course Learning Outcomes

TOPICS FOR DISCUSSION PURPOSES

Program Learning Outcome

Exhibit entry level skills for

Enhance students professional

Communicate effectively using oral,

Develop students proficiency to

Achieve academic excellence to

Improve the analytical and research

Use sound judgement and apply

Course Learning Outcomes

Course Learning Outcomes

Program Learning Outcome

Provide learning experiences that

List all certain

Program Learning Outcome

Enhance students professional

Exhibit entry level skills for

Enhance students professional

Communicate effectively using oral,

Develop students proficiency to

Communicate effectively using oral,

Develop students proficiency to

Achieve academic excellence to

Improve the analytical and research

Achieve academic excellence to

Improve the analytical and research

Use sound judgement and apply

Course Learning Outcomes

Recall all the items

Exhibit entry level skills for

Use sound judgement and apply

Course Learning Outcomes

Program Learning Outcome

Provide learning experiences that

Program Learning Outcome

Exhibit entry level skills for

Enhance students professional

Exhibit entry level skills for

Enhance students professional

Communicate effectively using oral,

Develop students proficiency to

Communicate effectively using oral,

Develop students proficiency to

Achieve academic excellence to

Improve the analytical and research

Achieve academic excellence to

Improve the analytical and research

Use sound judgement and apply

Use sound judgement and apply

Course Learning Outcomes

Course Learning Outcomes

Program Learning Outcome

Provide learning experiences that deliver a

Display capability to pass

Program Learning Outcome

Provide learning experiences that deliver a